The IMF Approves Policy Reforms and Funding Package to Better Support the Recovery of Low Income Countries From the Pandemic
IMF News, July 22, 2021
Source details
- Canonical URL
- The IMF Approves Policy Reforms and Funding Package to Better Support the Recovery of Low Income Countries From the Pandemic
Other formats
Bibliographic details
- Published: July 22, 2021
Overview
- Press Release No. PR21/222; Washington, DC – July 22, 2021.
- Executive Board approved on July 14, 2021 reforms to concessional lending facilities and an associated two-stage funding strategy to support Low Income Countries (LICs) during the pandemic and recovery.
- Fund lending to LICs increased dramatically in 2020—an eightfold increase from average lending levels in 2017–2019—and is projected to continue at elevated levels for several years.
- Majority of future assistance expected through multi-year lending arrangements rather than emergency financing facilities.
Key Policy Reforms (centerpiece and operational changes)
- 45 percent increase in the normal limits on access to concessional financing.
- Elimination of hard limits on access for the poorest countries provided their economic programs meet the requirements for obtaining above-normal access.
- Simplification of access norms while preserving case-by-case assessment applying established access criteria (balance of payments needs, strength of economic program, capacity to repay).
- Alignment of PRGT exceptional access criteria with Policy Safeguards on High Combined Credit, retaining the feature that only poorer LICs are eligible for exceptional access.
- Extension of temporary increases to PRGT access thresholds that trigger procedural safeguards for high access until the next comprehensive review of facilities for LICs.
- Interest rates on all loans provided through PRGT facilities will remain at zero until the next review of the interest rate structure, to occur by end-July 2023.
- Proposed adjustment of the income threshold for blending concessional (PRGT) and non-concessional General Resources Account (GRA) resources; simplification of the role of debt vulnerabilities in determining blend status.
- Exploration of allowing all PRGT‑eligible countries to meet financing needs through PRGT facilities combined with introduction of a dual interest rate mechanism in the PRGT (noting divergent Director views and resource constraints).
Funding Strategy to Support the PRGT (two-stage)
- First stage aims to secure:
- SDR 2.8 billion in subsidy resources (to support zero interest rates).
- SDR 12.6 billion in PRGT loan resources, which could be facilitated by “channeling” existing and new SDRs.
- Proposal to increase the PRGT cumulative borrowing limit to SDR 68 billion to allow mobilization of loan resources.
- Subsidy resources to be generated by:
- Suspension of PRGT reimbursement to the GRA for administrative expenses through FY2026.
- Mobilizing SDR 2.3 billion via a broad burden-shared bilateral fundraising campaign.
- Proposal to create two new PRGT accounts:
- “Subsidy Reserve Account” (SRA).
- “Deposit and Investment Account” (DIA).
- Second stage (set for 2024–25) to seek a lasting solution to financing the Fund concessional lending model informed by updated assessment of likely LIC demand.
Executive Board Assessment — Findings, Concerns, and Guidance
- Broad support for the reform package to better position the Fund to respond to LIC needs; recognition that LICs have been particularly hard hit by COVID-19 and face significant challenges to achieve sustainable inclusive growth.
- Agreement that higher access limits provide flexibility to increase concessional support to countries with strong reform programs; access levels should remain based on established case-by-case criteria.
- Concerns raised by some Directors about entirely removing hard caps on PRGT exceptional access for poorer LICs; some suggested a sunset clause timed with the next full review.
- Emphasis on careful program design given many LICs face substantial debt vulnerabilities:
- Need for more in-depth analysis of capacity to repay the Fund.
- Enhanced attention to debt dynamics and capacity to repay in staff analysis and program documents, per Annex VI of the Board paper.
- Call for Fund support for capacity development in debt management.
- Some Directors expressed concern about removing requirement that programs with countries at high risk of (or in) debt distress be linked with debt restructuring.
- Mixed views on proposals involving gold sales or a gold pledge; some Directors recommended exploring gold sales, while a few did not support them due to complexity and potential balance sheet impacts.
- Directors endorsed fundraising targets for first-stage: SDR 12.6 billion in loan resources and SDR 2.8 billion in new subsidy resources, and broadly supported raising the PRGT cumulative borrowing limit to SDR 68 billion.
- Support for flexibility in donor options, timing, and mechanisms for providing subsidy contributions; acknowledgment that the Fund’s own efforts and internal resources will be essential.
- Directors welcomed creation of SRA with a secondary purpose as a supplementary reserve account, boosting the reserve coverage ratio.
- Directors commended exceptional donor response over the past 18 months and noted the substantial support requested, even if spread over several years.
- Given uncertainties around demand and donor timing/scale, Directors underscored need for close monitoring of PRGT finances and supported annual reviews of PRGT resource adequacy; first annual review expected before the 2022 Spring Meetings. A number of Directors called for an update on fund-raising status after the Annual Meetings.
Implementation and Next Steps
- Maintain zero interest rates on PRGT loans until end-July 2023 review.
- Execute first-stage fundraising to secure SDR 2.8 billion in subsidy resources and SDR 12.6 billion in loan resources; explore channeling of SDRs.
- Suspend PRGT reimbursement to the GRA for administrative expenses through FY2026 as part of subsidy generation.
- Prepare for second-stage review and long-term financing decisions during the 2024–25 comprehensive review of concessional facilities.
- Annual monitoring and reporting on PRGT financial adequacy, with the first annual review scheduled before the 2022 Spring Meetings.
Source: IMF press release PR21/222, July 22, 2021.